How US Entrepreneurs from New York, California, Texas, and New Jersey can Open a Private Limited Company in India | Private Limited Company Setup in India for US Investors
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Introduction for India Business Entry for American Companies & US based Investors:
India is one of the fastest developing countries with some of the best infrastructure, Information Technology, and Software expertise and is the 2nd most populated country with great manpower and skilled laborers. India is the best destination for any foreign entrepreneur/businessman to expand their business. India offers a wide range of benefits and business structures for entrepreneurs and startups. The Indian Government encourages foreign individuals to set up their businesses in India by providing various investment options and schemes for ease of doing business. Most foreign entrepreneurs who wish to start their business in India are from the US. Some of the most successful US entrepreneurs have started/expanded their businesses in India. One of the most common business structures chosen by US entrepreneurs is a Private Limited Company. A private limited company is almost similar to a limited liability company in the US. In this article, we will understand everything about a Private Limited Company and how US entrepreneurs from New York, Texas, New Jersey, and California can expand their business by opening/incorporating a Private Limited Company in India.
Advantages of a Private Limited Company for US based Businesses:
1. The shareholder’s liability is limited to the extent of the unpaid amount of the shares held by them. The shareholder’s personal assets cannot be attached.
2. It is easy to raise funds in a Private Limited Company through Debt, Venture capital, etc.
3. A company is treated as an artificial person, which means it is distinct from its owners/management. A company is a separate legal entity.
4. A company enjoys perpetual succession. Even if the entire management is removed or has left the company. Even if the owners of the company decide to leave the company, the company will continue. A new management will take over the company.
5. A private Limited company is governed by the Companies Act 2013. The company must complete various compliances from time to time. Therefore, it is a trustworthy form of business structure.
Incorporation Procedures: Setting-up of a Company by US Businesses in India:
1. Reserving the company name:
The first thing you need to do is reserve a name for your company. The Companies Act 2013 lays down certain rules regarding the restriction on certain names. The Department of Indian Government, which deals with corporate matters (also known as the MCA), offers a service on its official website where one can reserve the name of one’s company.
2. Obtaining e-signature and Identification Numbers for Directors:
The Companies Act 2013 makes it mandatory for all directors to obtain Director Identification Numbers (DIN). Even the foreign directors (foreign individuals who wish to become directors in an Indian Company) shall obtain the DIN.
Also, digital signatures or e-signature certificates shall be obtained and used to sign all the company’s digital documents.
3. Drafting of important documents
The two most important documents of a company are the Memorandum and Articles (MOA & AOA). These documents serve as the company’s constitution and guidebook/manual. These documents shall be filed at the time of the incorporation of the company. They contain all the company details.
4. Filing the Incorporation document
The Indian Government has simplified the incorporation process by introducing online portals and forms for filing the incorporation document. The e-form enables entrepreneurs to apply for various forms/compliances at the same time. The MCA portal consists of all the details and step-by-step procedures.
5. Paying the applicable fee
Along with the documents and incorporation form, one must pay the statutory fee, which the Indian Government fixes. The fees and stamp duty may differ from state to state.
After verifying all the documents, the statutory authorities will issue the certificate of incorporation.
Rules and Regulations:
There are certain rules that are to be followed when a foreign individual wishes to incorporate a company in India:
1. Indian Resident Director
A company incorporated in India by any foreign entrepreneurs or businessmen can have foreign directors. Still, at least one Indian resident must serve as one of the company’s directors.
2. Foreign Direct Investments
The Indian government allows foreign investments in many sectors to promote Indian companies. Some sectors are eligible to attract foreign investment without any approval from the Indian Government or the RBI. However, certain sectors require prior approval from the Government.
3. Foreign currency Regulatory requirements
When a foreign entrepreneur incorporates a business in India, foreign currency will outflow and inflow. Therefore, all such companies shall comply with the rules and regulations set out by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). Any profits earned by the foreign investors in the form of dividends or by the owners of the business/company can be transferred back to the foreign country after paying the applicable taxes and informing the RBI. It is better to maintain the documents and records of all such transactions.
4. Foreign investments compliances
The company shall inform the RBI of all foreign investments and transactions. There is a portal for Foreign Investments where such reporting must be made. Specific forms must be filed when shares are issued to any foreign investor and also when the shares are transferred between residents and non-residents.
5. Pricing of the shares
Shares issued to foreign investors or transferred from foreign investors to any resident investor must be priced according to the Reserve Bank of India’s guidelines.
Conclusion:
Incorporating a private limited company in India can be the best way to expand your business in Asia and globally. It certainly isn’t an easy task, but it is not an impossible one either; with proper legal advice and guidance, one can incorporate a private limited company without any roadblocks or issues. A local legal advisor is certainly very important for an entrepreneur from New York, California, and other US states. If you hire an expert lawyer or a law firm, they can guide you through every decision and make sure that the company doesn’t face any major problems. US businesses have already opened their branches and incorporated several companies in India. Entrepreneurs and businessmen from New York, New Jersey, Texas, and California have had successful times running businesses here in India. The task is easier when you have a trustworthy person who is authorized to carry out all the activities and ensure the smooth functioning of business; and an expert legal advisor who ensures that the company is complying with all the applicable laws.
FAQs on Registering a Private Limited Company by American Citizens & US Firms in India:
1. What are the important documents for a director?
Ans: Identification number and e-signature certificate are the most important documents that a director should have.
2. What is the initial step for incorporating a Private Limited Company?
Ans: Name Reservation is the first and most important part/step in the incorporation process. The Indian Government shall approve the name.
3. Can I incorporate my company online?
Ans: Yes, the Indian Government, as part of its ‘ease of doing business’ campaign, has introduced an online portal/procedure where one can easily complete the incorporation procedure online. The online form can be used as a single application to acquire more than one document that is important for incorporating a company.
4. What rules apply to foreign investments coming into a company in India?
Ans: The Reserve Bank of India and the Government periodically notify certain rules and regulations regarding foreign investments in Indian Companies. The government may require certain companies to acquire prior approval to bring in investments from other countries.
5. What authorities regulate foreign investments and foreign transactions?
Ans: The Foreign Exchange Management Act (FEMA) and the Reserve Bank of India regulate foreign currency transactions. All companies dealing with foreign currency transactions must comply with their rules and regulations.
6. What is the importance of a legal advisor in the company incorporation procedure?
Ans: A legal expert can guide you through the incorporation procedure. The company must complete a number of compliances, and a legal advisor can complete all the procedures, filings, and compliances.
Authored by Adv. Anant Sharma & Inayat Ahmed
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